3 smart times to refinance your mortgage


Although refinancing doesn’t always make sense, there are many scenarios in which you will come out on top.

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When you first bought your home, chances are you took out a long-term mortgage, like a 30-year fixed rate loan. While it may have seemed like an almost lifelong decision, the reality is that homeowners can often modify their mortgages by refinancing them.

With mortgage refinance, you can take out a new loan to cover your old one, so you’re essentially switching from the terms of your old mortgage to those of the new loan. If interest rates have fallen, for example, you might be able to refinance to have a mortgage that reflects those lower rates. Or, you could refinance over a term of 15 years instead of 30 years, for example.

If you think you might benefit from refinancing, answer a few quick questions here to see what kind of interest rate you qualify for.

3 smart times to refinance your mortgage

Although refinancing doesn’t always make sense, there can be many scenarios where you will come out on top. As a result, it might be worth considering refinancing when:

When you can get a significantly lower interest rate

If you can get a mortgage refinance rate which is significantly lower than your current mortgage rate, you could save money by lowering your monthly payments and lowering your overall interest payments. However, mortgage refinancing comes with average closing costs of around $5,000, according to Freddie Mac.

You can use the online mortgage amortization calculator below to see how interest rate differences affect your mortgage payments. This way, you can see if the long-term savings of a lower interest rate outweigh the closing costs.

In 2021, owners refinanced to lower their interest rates by an average of 1.15%, notes Freddie Mac.

You might still have a smaller difference between your old interest rate and your new one, depending on things like loan size. Or, you might decide to wait and see if rates drop in the future in order to save more. To figure this out, it’s good to do the math on your own, or with the help of a trusted professional, to see what works in your situation.

Answer a few simple questions here to determine if a mortgage refinance is right for you.

When you can drop your PMI

Another good time for mortgage refinancing could be if taking out a new loan lets you ditch private mortgage insurance (PMI). Generally, you will have to pay for PMI when the level of equity in your property is below 20%.

So maybe you initially put down 10% to buy a house. Then, a real estate boom might have increased your home’s value, which counts towards your home’s equity. By refinancing, you can then exceed this 20% threshold, because you may not have to deposit as much when calculating your gains on the equity in your property.

If you’re close to hitting 20% ​​with a few more monthly payments on your current mortgage, the refinance costs might not be worth it.

But if you can save the money that would otherwise have been spent on PMI payments for a longer period of time, especially if a new mortgage refinance loan has more attractive terms than your current mortgage, you might be able to get away with refinancing. .

When can you reduce the term of your loan

If you find yourself able to refinance to reduce the term of your loan, it could pay off in the long run. Keep in mind that this often means your monthly payment goes up, but since you’re paying off the mortgage faster, say in 15 years instead of 30, this could mean you’ll pay less interest over the life of the loan.

Suppose you got a raise and can afford a higher monthly mortgage payment. In this case, you could decide to pay off your mortgage sooner by refinancing it for a shorter term. The specifics, however, depend on factors such as your current interest rate versus the mortgage refinance rate.

Again, you can use the mortgage amortization calculator below to see what different loan terms would mean for your mortgage payments.

The bottom line

Although these are general guidelines on when it might make sense to refinance your mortgage, they illustrate how refinancing can be financially beneficial for some homeowners. You could also gain peace of mind, for example if you could refinance to a lower monthly payment that gives you more financial flexibility. Or maybe you would prefer to pay off your mortgage sooner, so that a shorter term works for you.

Either way, it might be worth it given how the refinancing could benefit you personally. Not everyone has the same financial situation and goals, but it might be a good idea to explore your options and speak with a trusted professional to see if refinancing is right for you now.

Answer a few simple questions online now to help you determine if a mortgage refi is right for you.


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